<![CDATA[Break up 'unnatural and abnormal' monopolies to sustain high growth, US-China business group head urges Beijing]>
China should break up the state monopolies which dominate nearly half of its economy to create a level playing field for both foreign firms and private Chinese companies, the president of the US-China Business Council says.
The power of monopolies in China is "very unnatural and abnormal" compared with other countries, Craig Allen said in an interview with the South China Morning Post, adding that 43 to 45 per cent of China's economy is closed to foreign investment and Chinese privately owned companies.
The long list of sectors controlled by state-owned enterprises in China includes telecommunications, media, electric power, oil and gas, coal, steel, aluminium, construction, engineering, aviation, railways and most of the insurance and banking sector, he said.
The present economic model "served China well" when it was trying to catch up to developed countries after opening up to the West 40 years ago, Allen said.
The Industrial and Commercial Bank of China is among the dominant state-owned enterprises in China. Photo: AP
Allen, a former trade official who held posts in the administrations of several US presidents " including as senior commercial officer at the US Mission to China in Beijing " was appointed the non-partisan, non-profit council's president in July 2018, as the trade impasse between the world's two biggest economies grew amid the Trump administration's tough China policies.
The council has about 200 member US companies that do business with China, including Amazon, Coca-Cola, Boeing, Cisco, Dell, Smithfield Foods and Walt Disney. It was founded in 1973, a year after former US president Richard Nixon's trip to China helped push the country out of its long diplomatic isolation and towards its opening up to the West.
But despite its dramatic growth and cultural evolution, China is seen as unable to progress as a world leader with an economic engine that is out of sync with the developed world.
"We need to re-evaluate it. And that is what the [US-China trade war] negotiation is about. We are hopeful that the negotiation will lead to a positive reformulation of economic structure in China".
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Foreign companies, he said, want "real competition and a real opportunity to compete".
"We are not asking for a guaranteed outcome. We are asking for guaranteed access."
Despite optimism that a deal soon could be at hand to end the trade war, the sides remain far apart on issues such as a mechanism to force China to honour its commitment to further open up access to its markets, reduce its subsidies to state firms and improve intellectual property protections for foreign firms operating in the country.
"I applaud the Trump administration for taking on the problems very directly," Allen said in the interview. "And I applaud the Chinese government for working in a very pragmatic manner to address those problems.
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"There are some difficult problems. It is more important to do it well than do it quickly, but we are hopeful that there will be a resolution soon," he said.
Allen stressed that it is in China's interest to level the playing field for both foreign and privately owned Chinese firms.
"By allowing foreign companies to come in, you will have lower prices, better services and more competition," he said. "That is exactly what China needs to escape the middle income trap. That is exactly the medicine you need to add economic growth.
All of the business council's member companies have been affected by the trade war, Allen said. Political worries are an obstacle for those contemplating moving production to China's neighbouring countries of Vietnam, South Korea and Thailand, notwithstanding the advantages such a move would offer.
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Foreign investors, he said, now must confront political uncertainty. Tensions related to the tariff battle have come on top of territorial issues in the South China Sea, Beijing's relations with Taiwan and global worries tied to China's rise in the fields of artificial intelligence, robotics and 5G technology which has the potential to transform the country into a hi-tech industrial juggernaut.
"The US-China relations have gone through many phases. I would say we have a crisis every 10 years," Allen said. Referring to the trade war, he said: "We have a crisis now, so I feel honoured to be here now to try to manage the crisis."
A logo of the Agricultural Bank of China " one of the big state-owned commercial banks in China " at a financial conference in Toronto, Canada. Photo: Reuters
He endorsed economist Nicholas Lardy's estimate in a recent book, The State Strikes Back, that China would see annual growth of just 5 to 6 per cent if it failed to press ahead with a promised embrace of market driven economics and an overhaul of its state-owned enterprises.
Opening market access could boost growth to 8 per cent in the next decade, Lardy wrote, allowing China to escape the middle income trap " which occurs when developing countries get stuck at a certain income level " and avoid problems related to its rapidly ageing population.
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Since Deng Xiaoping launched China's opening-up policy in 1978, China has transformed itself from a backward, agrarian economy and politically isolated state into the world's second-largest economy and an important player with global interests and influence.
When it joined the WTO, the outside world believed the country was on the cusp of moving more fully towards a market-oriented economy. The onset of the global financial crisis in 2008 interrupted that evolution " with China holding up the crippled world economy with its own growth " but in 2013 it repeated a commitment to market reform.
Even so, China's government has shown "considerable flexibility" in its willingness to remake aspects of the way it does business, Allen said, citing tax cuts, a reduction in the number of restrictive sectors for foreign investment and lowered capital requirements for setting up joint ventures as examples.
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"But where we are really focused is the role of state-owned enterprises within the economy and the role of subsidies to support SOEs," he said.
Beijing sent the message that it wanted to level the playing field for overseas investors and reassured the global community it remains an attractive investment destination last month when it approved its new foreign investment law, he said.
Although details of the law are still to emerge, foreign companies welcomed the move as a sign of progress.
"The devil lies in the details," Allen said. "Over the next nine months, we will see [the extent to which] the regulation will be helpful to foreign companies."
This article originally appeared on the South China Morning Post (SCMP).
Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.
